Mortgage rates were roughly flat this week, which is a week before the Federal Reserve may raise interest rates further. Rising Covid cases in China are adding concerns to the market about the impact of a potential lockdown on supply chains and the global economy. According to Freddie Mac, the 30-year fixed mortgage rate fell slightly to 5.10% from 5.11%. Thus, current buyers need to spend about $25,000 more to buy the typical home compared to a purchaser who bought their home a year ago.
Even though mortgage rates are higher now than the previous year, on a historical level, rates still aren’t as high as they used to be. For example, in 2002, the average rate on a 30-year fixed mortgage was about 7%. In addition, the rate on a 5-year adjustable-rate mortgage (ARM) is lower by 1.3 percentage points than a 30-year fixed mortgage rate. However, the historical average spread between these two rates is about 0.8 percentage points, making the 5-year ARM currently more attractive to borrowers. Although the most popular form of home financing is the 30-year fixed-rate mortgage, adjustable-rate mortgages (ARMs) are also common. Thus, we may see a change in U.S. household mortgage trends. According to the Federal Reserve of New York, the ARM share has fluctuated substantially over time, reaching highs of 60 to 70 percent in 1994 but falling significantly in recent years. Nevertheless, buyers should be aware that the rate and consequently the monthly mortgage payment will change after the first 5 years, depending on economic conditions.